PHARMACEUTICALS companies used to be research enterprises that discovered and developed drugs. Then they became marketing giants, skilled at selling as many blockbuster pills as possible. Lately, they have turned into mergers and acquisitions machines, buying and selling medicines invented by others. It is hard to view their evolution as progress.

Pfizer’s $160bn planned acquisition of Dublin-based Allergan, the maker of Botox, has attracted loud criticism because it will allow the US group to reduce its taxes through an ‘inversion’ into Irish domicile. It is equally a symptom of the M&A frenzy that has gripped the industry in the past couple of years, with companies lining up to bid in auctions for valuable patents.

“I cannot comprehend why [the deal] is not being applauded by the political class,” Ian Read, Pfizer chief executive, complained this week. Presumably, Mr Read was being deliberately dense because it is obvious. Pfizer will not achieve its aim of ‘earning greater respect from society’ by combining asset trading with tax arbitrage.

Instead of taking their chances by investing in drug discovery themselves, some wait until a smaller biopharmaceutical enterprise has done so and then try to buy the rights. It is less risky and uncertain for investors but it also tends to be extremely expensive. AbbVie, for example, paid $21bn for Pharmacyclics this year, largely to acquire a single blood cancer treatment.

Their shareholders have become addicted to mergers. The Pfizer-Allergan deal provoked their dismay not because Pfizer is paying a huge price for Botox and tax relief but because the next one was postponed. Instead of following the megamerger instantly with a demerger, it will wait at least two years before splitting its patent drugs and generics divisions. How boring!

The lesson many drew was not only that drug discovery was very expensive and hard — the US industry’s figure is that it costs an average of $2.6bn to bring a drug to market — but also that they were too big and inflexible to do it well

How did we get into this world of corporate flux, in which companies such as Valeant and Actavis, which acquired Allergan and renamed itself, gobble up others before most people have learnt their peculiar names? Why did the industry place itself on a regimen of dealmaking, rather than sticking to its nominal purpose of making drugs?

Bizarrely, this round of mergers is supposed to solve the problems created by the last one — the burst of activity in which large pharmaceuticals groups such as GlaxoSmithKline and Pfizer, which bought Warner-Lambert for $90bn in 2000 and Wyeth for $68bn in 2009, were formed.

They were assembled in the blockbuster era — when Pfizer’s statin, Lipitor, and Merck’s painkiller, Vioxx, could in theory be marketed more effectively by larger US sales forces. Not only did Merck have to recall Vioxx and pay billions in fines and restitution to settle claims it caused heart attacks, but the new research giants also suffered productivity crises as blockbusters went out of patent and pipelines dried up.

The lesson many drew was not only that drug discovery was very expensive and hard — the US industry’s figure is that it costs an average of $2.6bn to bring a drug to market — but also that they were too big and inflexible to do it well. It made more sense to rely on start-ups to discover the new generation of cancer and heart drugs, then to fold them in.

“We would expect Big Pharma’s current level of R&D spending to become a luxury that investors no longer tolerate,” wrote a group of McKinsey consultants in 2011. The man who took this most to heart was Michael Pearson, a former McKinsey partner, who as chief executive turned Valeant into an acquisition vehicle that systematically stripped research from its conquests.

The industry has since become a gigantic game of asset trades, in which companies buy each other for individual drugs, or collections of them, and try to justify the multibillion cost by putting up prices. This has provoked the criticism that Mr Read bemoans — biotech shares have fallen since Hillary Clinton, the US Democratic presidential contender, condemned the practice.

Pfizer is not the worst offender — its research and development is still at 17pc of revenues, while R&D at US drugs companies as a whole has flatlined in real terms since 2006 as sales have risen. Nor even is Allergan at fault when compared with Valeant, although Brent Saunders, Allergan’s chief executive, is a sceptic of early stage drugs research, preferring dealmaking.

In financial terms, the merry-go-round worked until recently — Allergan’s share price has risen sixfold in five years — but it suffers from an illusion. Offering a premium for proven drugs and adjusting the balance sheet, rather than squeezing profits by investing directly in research, does not avoid the bill. The acquirer has to pay the same amount in a less visible form and add a generous transaction tip.

If you believe big pharmaceutical companies are inherently awful at research, it may be worth it. But what if the previous round of mergers coincided with a tough transition in medical science, and companies, consultants and investors mistook that for industrial inefficiency? Not only has research productivity since risen, but Pfizer’s research division produced Ibrance, its new breast cancer drug.

Mergers, acquisitions, tax inversions and price rises are definitely not making pharmaceuticals companies popular with patients or politicians. If they turn out to be wasting capital too, they will look rather foolish.

john.gapper@ft.com

Published in Dawn, Business & Finance weekly, November 30th, 2015